A balanced fund that has been around for nearly two decades now, ICICI Prudential Balanced is a good fund for beginners or investors who want equity exposure with low downside risks. Across different market cycles, the fund has more or less stayed near the top of its category. It does better than most of its peers in containing losses during bearish markets, the hallmark of a good balanced fund. It’s also a consistent performer, beating its benchmark CRISIL Balanced Fund Aggressive index virtually all the time when returns are rolled for different time frames.
ICICI Pru Balanced maintains equity exposure at 65-75 per cent of the portfolio and holds the rest in debt. This fund will be less volatile than pure equity funds and fall a lot lesser during bearish markets. Gains during bull markets will be capped because the fund (and balanced funds in general) has always kept at least 25 per cent of its portfolio in debt at all times. It requires a holding period of 3-4 years at least and can be part of any long-term portfolio.
In the one, three, and five year time frames, ICICI Pru Balanced delivered returns 2-3 percentage points higher than the category average, and 6-10 percentage points above the CRISIL Balanced Fund Aggressive index. It has stayed near the top of its category in these time frames too.
Rolling its three-year return over the past five years, ICICI Pru Balanced has beaten its benchmark 90 per cent of the time. This indicates a good record of consistent outperformance. The average of these rolling returns for ICICI Pru Balanced is unmatched by other balanced funds save HDFC Balanced and Tata Balanced.
In bearish markets, the fund’s ability to contain losses is much better than most peers. In the 2011 market slide, for example, the fund was down 10 per cent against the category average of 17 per cent and the benchmark’s 14 per cent. The fund similarly navigated the choppy markets of 2013 and early 2016 well, staying above the benchmark.
Owing to active management in both its equity and debt components, the fund’s volatility is slightly higher than the category’s average. Most balanced funds do not actively juggle their debt holdings; they prefer to invest in top-quality corporate bonds and simply hold these. Despite ICICI Pru Balanced’s higher volatility, it is able to deliver risk-adjusted returns that are well above category average. The recently outperforming SBI Magnum Balanced and top performer L&T India Prudence are the only funds that score higher on risk-adjusted returns while having a lower volatility.
Portfolio and strategy
ICICI Pru Balanced takes a valuation-based approach to its portfolio. For instance, NBFC, consumer non-durables and automobile stocks had a sizeable share in the fund’s portfolio in early 2015 and late 2014, and together accounted for around a fifth of the portfolio. That share drastically dropped this year as valuations got too high in consumer-focused sectors. The fund holds no auto stocks currently, while consumer non-durables and NBFCs are just about 5 per cent of the portfolio. Even in sectors such as construction and capital goods, which enjoyed a stellar run in 2014, the fund booked out of stocks such as BEL and V-Guard Industries.
The valuation play is also evident in the fund moving significantly away from consumer themes into cyclical ones, given the direction of economic recovery. This is slightly riskier than following a balanced approach between consumption and cyclical, but if recovery does pan out as hoped, these calls could work well. Some of this risk is mitigated by the fund staying away from the more troubled cyclical sectors like capital goods, infrastructure, or construction.
Instead, it is playing the theme through other sectors. Top sector holding is banks, where it holds a mix of public and private sector banks such as HDFC Bank, ICICI Bank, and SBI. Power is another sector where the fund has steadily built up holding; here, it has stayed away from the more troubled stocks and instead picked those with strong fundamentals such as Power Grid Corp and NTPC. The fund also holds significantly in petroleum and oil & gas through stocks such as Reliance Industries, BPCL, and Castrol India, which can continue to benefit from a lighter subsidy burden and lower input costs.
On the debt side, ICICI Pru Balanced has switched between accrual and duration strategies. Duration worked well for the fund in periods such as early 2009, 2014, and 2016. Where it invests in corporate debt, the fund sticks to short-term top-quality papers.
Atul Patel is the fund’s new equity manager, but ICICI Prudential’s CIO and veteran fund manager Sankaran Naren has been the co-manager of this fund, which gives comfort over its management. In fact, the fund has seen a fair amount of management churn over the past ten years, but its performance hasn’t taken much of a blow. On the debt side, Manish Banthia has been managing the fund for the past three years and is a capable fund manager. The fund has an AUM of Rs 3,719 crore.
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